(Reuters) — Civeo Corp, the provider of oilfield accommodation services recently spun off by Oil States International Inc, surprised Wall Street on Monday by saying it would not convert to a real estate investment trust (REIT) and would instead relocate to Canada for tax purposes.
Civeo, currently based in Houston, said its board believes converting to a REIT would do little to reduce most of the company's taxes, since nearly all corporate income comes from more than 20,000 dormitory-style rooms — commonly known as "man camps" — across remote parts of Canada and Australia.
Shares of Civeo plunged 45 per cent to $13.95 on Monday morning (all figures in US dollars).
Hedge fund Jana Partners LLC, Civeo's largest shareholder, had pushed for the Oil States spin-off and also for the REIT conversion, a step that would bring tax benefits but require the company to pay out at least 90 per cent of taxable income to shareholders, limiting cash for growth. Jana declined to comment.
Civeo said it plans a "self-directed redomiciling" to Canada, which it believes is allowed under U.S. tax code since more than 25 per cent of revenue, assets and employees are based in Canada.
Converting to a REIT would have required a one-time payout of $720 million for taxes and other items, a step that would sharply increase debt, said Civeo. It plans to remain a C corporation, which under U.S. tax law refers to companies that are taxed separately from their owners.
In Canada, Civeo expects a tax rate of 25 to 26 per cent, which it says is at least four per cent lower than the rate it would have had in the United States had it converted to a REIT.
However, Civeo warned its move to Canada "is subject to potential future changes to tax laws and regulations."
The Obama administration earlier this month put in place tough new rules designed to prevent so-called corporate inversion deals that make it appealing for U.S. companies to relocate abroad. The rules are expected to have the biggest effect on companies that invert to gain access to earnings held overseas to avoid U.S. taxes.
Civeo spun off from Oil States four months ago to focus on its core business, which includes selling cranes for offshore oil platforms, as well as other oilfield services and equipment.
As part of that deal, Civeo took out a $775 million loan and sent $750 million to Oil States as a special dividend, helping settle its share of its former parent company's debt.
© Copyright Canadian HR Reporter, Thomson Reuters Canada Limited. All rights reserved.